In Union Budget 2014-2015, honorable finance minister rolled out a gift to taxpayers of this country by introducing additional deduction of Rs 50000 under Section 80C. This was a good news considering the income tax benefits were not reviewed for a long time. Now under Section 80C, Rs 1.5 lakh can be claimed for income tax deduction from the income. For many investors with higher incomes, this additional benefit may be taken care of but for most they will be planning to invest this additional surplus in reducing their tax liability.
Here is what to consider while planning for investing this additional sum of Rs 50000:
For Long Term Goals
The first priority should be to look at long-term goals. There might be a shortfall in contribution for achieving any of them. PPF, EPF, VPF and NPS are investments which help in meeting long-term objectives. The contribution to these accounts can be claimed as a deduction under Section 80C wherein the limit has been enhanced to Rs 1.5 Lakh. If there is a need to allocate more towards any of these then the additional provision of Rs 50000 can easily be considered. Where exactly to invest is a decision which will rest on whether you have a shortfall for your retirement accumulation or some other goal.
For Short/Medium Term Goals
The long-term contributions might have been fulfilled, but there would be some short or medium term goals which need additional contribution. There is tax saving Fixed Deposits, ELSS, NSC, Senior Citizen Savings Scheme where an investor can claim benefit under section 80C. But all these options are not Fit For All and so the selection should be done only after analyzing the requirement. SCSS is a good option only for retirees wheres ELSS is considerable for risk taking investors even though the long term capital gains tax is completely exempted . On the other side interest from FDs, NSC and SCSS is fully taxable which investors need to factor in.
Insurance For Family Protection
Protecting your family from eventualities is the first aspect in financial planning. Many delay it even due to inability to claim any tax benefit on the outgo since other options have exhausted Rs 1 lakh limit. Now the additional provision of Rs 50000 will help in taking this decision. If there is a need to buy an adequate life insurance coverage to protect one’s family then its time to go ahead. The premium outgo can now easily be claimed under Sec 80C. If term insurance is purchased then there will be a higher probability that even this Rs 50000 may not be consumed fully. In that case other options like ELSS can be considered since one may invest only for tax benefit.
The tax provisions remained unattended from long time and so enhancement was a welcome move for taxpayers. But to utilize this additional surplus optimally investors should make a selection after taking factors like taxability and personal risk in consideration. Most importantly, invest for the goal and not only for the tax benefit so that there is no mismatch between your expectation and the end result of the avenue you have choosen.
As Published in The New Indian Express.
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